JP Morgan (JPM) reported a 14% drop in fourth-quarter earnings but beat analysts’ estimates. They posted a profit of $10.4 billion or $3.33 per share compared to $12.1 billion or $3.79 per share in the fourth quarter of last year. Analysts’ consensus had expected earnings of $3.01 per share. Revenue missed expectations with trading revenue down 7% and fixed income down as well. Pre-market shares are down 3.8% despite the investment banking global mergers and acquisitions activity shattering all-time records in 2021 and a record profitable quarter.
First Republic Bank (FRC) beat estimated earnings by 4.66% reporting an EPS of $2.02 versus an estimate of $1.92 a share. Last year EPS was $1.60. Revenue was up $287 million from the same period last year. First Republic saw growth in loans, deposits, and wealth-management assets. Shares are trading slightly lower by 1% pre-market.
Yields are slightly higher at .64% with the VIX up 5.5%. S&P down .6%. Yet to be seen is how traders react. Will they be too nervous to hold over the weekend?
(Friday Market Open) JP Morgan (JPM), Wells Fargo (WFC), Citigroup (C), BlackRock (BLK), and First Republic (FRC)
The battle of the Nasdaq
The Technology Select Sector Index fell 2.60% despite better-than-expected earnings from Taiwan Semiconductor
Weakness in the tech sector was also a drag the S&P 500 (SPX), which closed 1.42% lower. The Dow Jones Industrial Average ($DJI) held up a little better but still fell 0.49%. Technology, consumer discretionary, and health care were the bottom sectors, while utilities, industrials, and consumer staples were the top and only sectors with positive returns on Thursday.
Vaccine makers traded lower after the Supreme Court blocked the Biden administration’s COVID-19 vaccine-or-testing rules for large private employers. While the government did have some latitude for health care providers because they receive federal funds for Medicare and Medicaid programs, the private-employer requirements for businesses with 100 or more employees was said to exceed the authority that Congress had granted the Occupational Safety and Health Administration (OSHA). Pfizer
After skyrocketing more than 14% on Wednesday, natural gas futures gave most of their gains back on Thursday, falling more than 12%. Apparently, traders felt that the market got a little carried away and pushed prices lower. The supposed cold snap that drove natural gas higher may still be a threat because heating oil futures were able to eke a second consecutive higher 52-week close.
It would seem logical that changes in the weather that effect natural gas and heating oil prices would also affect electric and gas utility companies. However, utilities aren’t sensitive to these costs because they’re usually able to pass the changing costs on to consumers. Instead, utilities are more sensitive to changes in yields or interest rates.
Investors commonly hold utilities because of their low volatility and high dividend yields. Therefore, utilities tend to perform better when investors are nervous or bearish or when yields are falling. Higher yields on Treasuries make them a more enticing investment than utilities because they’re considered safer investments. But lower Treasury yields make the higher dividends of utilities more appealing.
With that said, Treasury yields and utilities have been a little out of sync during the pandemic. At times, they’ve moved in opposite directions, and at times, they’ve moved together. The issue has been investor nervousness about the economy as well as the prospect of the Fed raising rates.
Bringing the Heat: With the weather cooling down and housing heating up, HVAC (heating, ventilation, and air conditioning) may be on the mind of some investors. HVAC companies like Ingersoll-Rand
Software Too Soft: The S&P Software & Services Industry Index is down more than 18% from its November 2021 high. The industry group is heading into bear market territory (20% decline) and is approaching support from its spring 2021 lows. The group has been hit hard as investors have changed their focus from growth to value. Many of these companies have high price-to-earnings ratios, if they have earnings at all.
While the technical support level may stall the fall, the software group could continue to struggle if the Fed has to raise rates faster and higher than it has projected. Analysts from Goldman Sachs
TD Ameritrade® commentary for educational purposes only. Member SIPC.